Certified Government Financial Manager (CGFM) Practice Exam 2025 - Free CGFM Practice Questions and Study Guide

The term that describes the process when a government issues new debt to pay off existing debt at better rates is known as refunding, also referred to as restructuring. This involves the issuance of new bonds to replace older bonds that may have higher interest rates. The purpose of refunding is to lower the overall debt service costs by taking advantage of more favorable interest rates, thereby improving the government's financial position.

In the context of public finance, this strategy is often employed when interest rates decline significantly, allowing governments to save money in the long term, potentially freeing up resources for other expenditures or investments.

Refinancing typically applies to mortgages or similar loans, debt consolidation usually refers to combining multiple debts into a single loan, and defeasance involves setting aside funds in an escrow account to pay off bonds at maturity without issuing new debt. These differing terms reflect distinct financial strategies and situations, highlighting the importance of terminology in public finance management.